Record low yields prompt suspension of government bond purchases by China’s central bank

China’s central bank has stepped up efforts to cool the bond market by temporarily suspending its open market purchases of government bonds, following recent warnings and heavy fines targeting bond-trading irregularities amid record low bond yields.

The suspension, which came into effect on Friday, was introduced because demand had exceeded supply in the government bond market recently, the People’s Bank of China (PBOC) said on its website, adding that its bond purchases would resume at a “proper time”, in accordance with the supply and demand situation.

Analysts said the temporary pause reflected the PBOC’s concern over the recent decline in government bond yields and aligned with its firmer stance in stabilising the yuan’s exchange rate, which was outlined at its fourth-quarter monetary policy meeting last year.

“The gap between government bond yields in China and the United States widened, which put pressure on the renminbi exchange rate,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

“The announcement today sent a signal that the PBOC does not want to see the government bond yield in China fall further and add more pressure on the exchange rate.”

As returns from traditional assets like stocks and real estate shrink, investors have been increasingly seeking low-risk alternatives, such as government bonds, to diversify their portfolios, resulting in a continual decline in China’s 10-year bond yield last year.

  

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